Basel 3.1

A second draft of Bank of England Banking Taxonomy 3.7.0 has been made available for consultation. All responses are required by 15^th November. The Prudential Regulation Authority’s Initiatives Interim Grid (published in October 2024) states that final publication of the taxonomy will be in Q1 of 2025.

Once publication is made, Whistlebrook will make the necessary changes to its regulatory product, WIRES. Clients that use the automated version of WIRES are encouraged to engage with Whistlebrook to ensure that any non-standard requirements for Basel 3.1, are taken into account.

Small Domestic Deposit Takers Regime

The capital rules were proposed in the PRA’s consultation paper 7-24. The deadline for responding to the proposals is 12^th December 2024. These rules will be effective from 1^st January 2027 and apply to those firms that have received an SDDT Modification by Consent. It is expected that a taxonomy for SDDT reporters will be published and replace the EBA version 3.0. Whistlebrook will introduce, to WIRES, the changes to forms and validation rules, ahead of the start date. SDDT clients of Whistlebrook that use the automated version of WIRES are, like their Basel 3.1 counterparts, encouraged to contact the WIRES Support team regarding firm specific requirements.

Large Exposures Framework

The PRA issued consultation paper 14-24 with details of changes to rules on large exposures. Most alterations will be introduced on 1^st January 2026.

Under the proposals, firms will no longer be able to use internal models to calculate the exposure for securities financing transactions.

Comparison of exposures to the large exposure limits is currently after credit risk mitigation. Therefore, for commercial and residential mortgages, the exposure can be reduced by the pledged amount (up to a cap) of either the mortgage lending or property market value.  It is proposed that this reduction not be permitted.

The consultation also proposes that exposures to the UK Financial Services Compensation Scheme, will no longer be exempt from the large exposure limits. There will also be a substitution approach introduced for the purpose of comparing exposures to the LE limit. Where collateral is provided as risk mitigation, it will be reassigned to the provider or issuer, as appropriate, and included in exposures to that party when performing the comparison.

Finally, trading book exposures to third parties will require to be limited to the higher of 25% of Tier 1 capital or GBP 130 million. Further details are available in the consultation paper.

Bank of England’s Approach to MREL

The Bank issued a consultation paper on 15^th October and has proposed several changes to Minimum Requirements for Own Funds and Eligible Liabilities. It is proposed that the asset range that is considered by the Bank when determining the best resolution method for a firm, were it to fail, is to be increased by £5bn. This change, if implemented, will be effective from 1^st January 2026. The range will become £20bn to £30bn. Also included is a proposal that institutions more likely to be suited to ‘Partial Transfer’ will have their MREL set equal to minimum capital requirements i.e. Pillar 1 plus Pillar 2A capital or the amount of Tier One that satisfies the leverage ratio need, where applicable, if higher.

Restatement of Assimilated Law

Securitisation Framework

PRA consultation paper 13-24 has proposed the introduction of changes for securitisations. Included within that paper is the ‘p’ factor used in the securitisation standardised approach. That factor will be changed. For the non-Simple Transparent and Standardised (non-STS) type, there will be a floor of 0.5 and a cap of 1.0. For STS, the equivalent will be 0.3 and 0.5.

Positions held in securitised residential mortgages that are under the Mortgage Guarantee Scheme, will under the standardised approach, be risk weighted as shown below.

Loan to Value (LTV)	Risk Weight
Up to 55%	20%
55% < LTV <= 80%	75%
80% < LTV <= 95%	0%

Mapping Tables

New mapping tables of Credit Quality Step and Credit Rating will be introduced for securitisation and general credit risk positions. The tables will be effective from 1^st January 2026.

WIRES Releases

Release	Content	Approximate Timing
7.0	Changes for Basel 3.1, minor enhancements, and small fixes	To be confirmed.

 

This regulatory update is Whistlebrook’s understanding of the position as at 6th November 2024.